Delta Air Lines, Inc. (NYSE: DAL) has only just come out of Chapter 11, and already is making a big splash by negotiating a deal for a possible order of 125 of Boeing Co.'s (NYSE: BA) new 787 Dreamliner aircraft. The purchase would have a total value [subscription required] of $20 billion and would be spread over several years. The company could still make a last minute switch to Airbus planes, but that seems unlikely.
Delta's purchase of the planes would be primarily aimed at increasing its routes overseas. As fare competition has heated up in the U.S., international routes have become more profitable. Short haul flights within the country require frequent maintenance of planes as they move in and out of airports. They also require more fuel for large numbers of take-offs and landings.
Flying to destinations outside the U.S., using larger planes, means more passengers per flight and larger business class and first class seating, bringing up the yield-per-passenger. While in bankruptcy, it was harder for Delta to secure the financing for a large fleet that could fly to destinations outside the US.
The move is a smart one for Delta, if international air travel remains profitable ten years out. A long-term investment in a new fleet depends on the trend being Delta's friend.
Douglas A. McIntyre is a partner at 24/7 Wall St.
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